Arman Financial

Arman Financial Services Limited reported a challenging Q4 FY25, with its microfinance subsidiary, Namra Finance, posting a marginal loss of ₹26 lakhs compared to a profit of ₹38.8 crores in Q4 FY24. For the full year FY25, Namra's net profit significantly declined to ₹7.8 crores from ₹138.3 crores in FY24. Consolidated AUM saw a 15% decline YoY to ₹2,245 crores, and consolidated PAT for FY25 decreased by 70% YoY to ₹52 crores. Despite this, consolidated Gross Total Income for FY25 grew 10% YoY to ₹730 crores, and Net Income increased 24% YoY to ₹491 crores.

The MFI sector faced a challenging environment, primarily due to higher provisioning stemming from ongoing stress in rural pockets. Namra's AUM declined 23% YoY to ₹1,686 crores, and quarterly disbursements fell 26% YoY to ₹393 crores. In response, the company has completely separated credit and recovery functions from branch operations and is implementing a new credit structure in 140 of its 391 branches, with the remaining to be covered by Q2 FY26. Additionally, 34% of MFI AUM is now covered under the Credit Guarantee Fund for Micro Unit (CGFMU) scheme, which is expected to increase significantly.

In contrast to the MFI segment, the standalone businesses, including MSME, micro-LAP, and 2-Wheeler financing, demonstrated strong performance and resilience. Standalone AUM grew 25% YoY to ₹560 crores as of March 31, 2025. Disbursements in this segment for FY25 were ₹481 crores, marking a 20% YoY increase. This portfolio maintained a healthy asset quality with a gross NPA of 3.38% and zero DPD collection efficiency of 99.5% for MSME, and over 99% overall for the quarter.

The company's continuous focus on collection and underwriting processes led to an improvement in asset quality. Consolidated gross non-performing assets (GNPA) stood at 3.37% as of March 31, 2025, an improvement of 75 basis points from 4.13% in December 2024. Arman adopted an aggressive provisioning policy, with cumulative provisions for FY25 amounting to ₹117 crores, covering 5.23% of the consolidated AUM and 6.55% of the on-book AUM.

The strategic decision to separate credit and recovery functions, while aimed at improving asset quality, is expected to increase overall OPEX by at least 1%. This is partly due to increased headcount, including 160 BCMs and 600 recovery officers, and higher travel allowances. The company also noted a high attrition rate in the MFI book, which was 62-63% last year, with a target to reduce it to 40% in H1 FY26. Management believes these costs are necessary to ensure pristine asset quality.

In March 2025, Arman successfully completed an Asset Reconstruction Company (ARC) transaction. The company assigned a pool of assets worth ₹185 crores, of which approximately 95% had already been written off in FY25. The valuation received for this pool was ₹36.75 crores, with the proceeds structured as 15% cash (₹5.5 crores) and 85% Security Receipts (₹31 crores). This transaction is part of the company's proactive approach to managing asset quality.

Management maintains a cautious near-term economic outlook, particularly for the MFI sector, and is prioritizing portfolio stabilization and asset quality over aggressive growth for the next couple of quarters. While the MFI segment is not expected to grow significantly in FY26, the standalone segments are projected to continue their growth trajectory. The company aims for its microfinance subsidiary to be independently profitable by Q2 FY26 and expects overall OPEX to normalize to around 5.5% in the future.